ECB Turns Into The Fed.
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In This Issue.

* LTRO is greater than expected.

* Gold & Silver soar!

* Gold to $2,000 in March?

* Thoughts from Chuck.

And, Now, Today's Pfennig For Your Thoughts!

ECB Turns Into The Fed.

Good day. And a Wonderful Wednesday to you! I'm writing from home today, so hopefully there will be no technical glitches and you get the Pfennig at the "new" regular time. I say "new" regular time, because, does go out about 1/2-hour later these days, as it goes through a legal review before going out. But what's 1/2-hour among friends? I appreciate that the legal beagles allocate their time to the Pfennig each day!

Speaking of allocating. The Big News this morning, is all about the European Central Bank (ECB) and their LTRO (long term recovery operations). I told you the skinny on what was going on yesterday, and so, I'll give you the results today. OK. yesterday I told you that if the Eurozone Banks requested around 400 Billion euros of loans that would be bullish for the euro. and if they asked for more than 500 Billion euros it would be bearish. Well. they allocated 6.5 Billion for 3 month loans, and 529.5 Billion for 3 year loans.

And the euro has seen some weakness from the results. Now, some view this as a "good thing", as they think back to the U.S. a couple of years ago, and banks got to dump toxic waste bonds at the Fed as collateral for loans that shored up the banking industry (or did it?). Those viewing this as a good thing like the fact that the ECB has become the lender of last resort, like the Fed in the U.S. Hmmm. I always thought more of the ECB.

So. there's enough of the "good thing" investors out there, to keep the euro from getting hammered. and in fact, after the initial barrage of selling after the LTRO announcement, the euro held ground and gained a bit back, remaining well bid above 1.34.

I saw a blurb this morning that a chartist at Bank of Tokyo-Mitsubishi UFJ Ltd. Believes that the euro's 5 and 21 day moving averages are pointing up, signaling a bullish trend for the euro, and that if the euro can climb to 1.35 in the near term, it most likely will rise to 1.3722.

OK. that's chartists stuff. You know me, I'm a fundamentals guy, but every now and then the charts interest me, but let me remind you that the trend is the thing that allows assets to move in a general direction, not charts.

And this reminds me of what I said in the first Pfennig of this year, and that is that I wouldn't be surprised to see the euro fall to 1.18, nor would I be surprised to see it rise to 1.40 in 2012. Right now, the single unit is defying gravity.

There was a brief period of euro weakness yesterday when Ireland announced that they would put the European Stability Treaty to a public referendum. I told the boys and girls on the trading desk that this is scary, because historically when it comes to Irish votes on Eurozone stuff, they have voted "no" the first time through. So, as I said yesterday, just when I talk glowingly about Ireland, they throw this cat among the pigeons!

As I look at the currency screens that I have at home, I see that the Aussie dollar (A$) has climbed past $1.08 this morning. That's been a nice recovery for the A$ this week, after getting sold earlier this week on the leadership vote uncertainty. The thing that really put the wind in the sails of the A$ overnight was the news from China that the People's Bank of China (PBOC) set the renminbi's reference rate at the strongest level on record!

So the Chinese economy may be moderating, but the PBOC is still comfortable allowing the renminbi to appreciate. I can hear the echoes in the halls of the PBOC, with members yelling. "take that, U.S. lawmakers!"

And speaking of a HUGE rally. Yesterday, Gold & Silver put on a very impressive rally. recall that yesterday I highlighted Silver and talked about it moving past, what some observers thought was resistance at $36. I didn't think that held much water, and preferred to go with another observer's call that the "past to least resistance will be higher" (Thanks again Scott!), and right out of the starters blocks Silver started moving higher. first through $36, like it was nothing, and then to $37! At $37, it saw some profit taking and it bounced back and forth around the $37 figure the rest of the day.

Gold, also saw a flood of buying, and by mid-morning Gold had taken out its so-called level of resistance at $1,785. My friends over at the 5-Minute Forecast, reported yesterday that their friend at Gold Switzerland, Egon von Greyerz said in an interview that "I think this move will continue and we should see at least $2,000 by the end of March."

Chuck again. WOW! But it makes sense, folks. Central Banks in the U.S., Eurozone, U.K., and Japan are rearranging the deck chairs on the Titanic. Mr von Greyerz went on to say some things that I wholeheartedly agree with. here are his thoughts. "In the last 18 months, world money supply has gone up by $10 trillion. There is massive money printing taking place worldwide. So central banks are doing this, but it is the wrong remedy because we are not going to solve anything by printing. The forest fire actually needs to burn the whole forest down. This is what needs to happen to the whole world economy. We need to reset the world economy and start again."

Chuck again. OK. let's move on to something else that's maybe not so depressing. Yes, something like the results of the latest Consumer Confidence number for the U.S. . Absolutely embarrassing to my fellow Americans I must say. Consumer Confidence in January didn't just rise. it soared! And with all this going on. Hmmm. a wise man once told me that Consumer Confidence is nothing but a gauge on the pulse of the stock market. And with U.S. stocks doing Jedi mind tricks on Americans right now, Consumer Confidence is strong.

But even that soaring Confidence report couldn't put legs under the dollar. Hmmm. Maybe because at the same time the Confidence report was a hootin' and hollerin', U.S. Durable Goods Orders were printing, and did they ever disappoint! New Orders for Durable Goods plunged a larger than expected -4% in January. I guess new aircraft orders couldn't help this month. I also read where Durable Goods hasn't posted a positive number in the first month of any quarter in the past 3 years! Don't know where that takes us, but thought it was interesting!

And U.S. Homes are still searching for a bottom, folks. the S&P/ CaseShiller Home Price Index for December, showed that Home Prices fell to their lowest level since the housing crisis. So, all that hootin' and hollerin' about the recovery in Home Sales, isn't being matched by a rise in Home prices. and won't, not as long as the long list of foreclosures waiting to happen this year remains hanging over Home Prices like the Sword of Damocles!

We have a plethora of Fed Heads speaking today, including Big Ben Bernanke. and then later today the Fed's Beige Book prints..

The price of Oil, although, a bit weaker, is still well above $100, and that continues to underpin the petrol currencies And now even the Canadian dollar / loonie is playing catch-up!

Then there was this. OK. I know I kind of went out on a limb yesterday and didn't put in the disclaimer that I had made back in December when I first made the call that I saw the center holding in the Eurozone, and that we would begin to see some stabilization. on a temporary basis. I say that because, there's so much going on that we just don't know everything that's going on behind the scenes. For instance, the rumor has it that Germany is conducting meetings on Greece's exit from the Eurozone.

Let me say this. and I've said this before. I think it would have been better to have let Greece default a year ago. kick them out of the euro, and let them go back to their drachma. They could then devalue the hell out of the currency in order to pay their debts. Yes, Greek bonds are denominated in euros, but a conversion could be worked out, just like it was when they went into the euro.

You see. to me, it's the slowest Buffalo theory. The slowest Buffalo, gets killed, but its killing allows the herd to move faster. Greece leaves the euro, and eventually the euro is allowed to move freely about the country without Greece holding it back. On a sidebar, I've often used this theory to describe beer and my brain cells!

So, stabilization is happening, but is not the "end-all" for the Eurozone, or Greece. or Portugal. But I can tell you this, as long as the U.S. continues to build up their unsustainable debt, there are going to be questions about which currency is more ugly. that's where you make the call.

And my thought yesterday about the number of people that do not use their company's 401(k) program, didn't have my complete thoughts. Those complete thoughts would have talked about a portion of those people, making the self-directed decision to not have funds tied up in retirement plans that they feel may one day be confiscated by the Gov't to fund their debts. So, in those cases, that's understood, to a degree. but, for the millions of others that think that it's better to have the disposable cash now, and not worry about the future, I worry.

To recap. The ECB's LTRO was larger than I expected it to be, and caused some worry for the euro, but that soon changed to a feeling that's it's all good, as the ECB is becoming the Fed. I don't share that view that it's good to be like the Fed, but the markets are taking the ball on this. And U.S. data was weak, with Durable Goods plunging, & Home Prices falling to their lowest levels since the house crisis. Consumer Confidence or should we say the stock market pulse soared higher!

Currencies today 2/29/12. American Style: A$ $1.0835, kiwi .8379, C$ $1.0125, euro 1.3550, sterling 1.5950, Swiss $1.1160, . European Style: rand 7.4250, krone 5.5395, SEK 6.55, forint 214.67, zloty 3.0620, koruna 18.5065, RUB 29.10, Yen 80.45, sing 1.2435, HKD 7.7550, INR 49.02, China 6.2939, pesos 12.77, BRL 1.6940, Dollar Index 78.29, Oil $107.08, 10-year 1.93%, Silver $37.30, and Gold. $1,787.90

That's it for today. and this week for me! I'll be back on Monday, just a quick trip out of town. Some damaging storms hit Missouri last night, none here, but Southwest like Branson. Hope everyone is OK. So, Feb 29. the "extra day". What are you going to do on your "extra day"? I'll be traveling, so not much for me.. We've had the pleasure of having Chris Gaffney back on the trading desk the last two days, as the meetings he's been in for 3 years to design, create, and test a new system were put on hold for a couple of days. He's been pretty quiet though, I think he's forgotten how much fun it is on the desk! Chris will have the conn on the Pfennig the next two days. and with that, I'll get this to the reviewers.. and Hope you have a Wonderful Wednesday, and Leap Day!

Chuck Butler


EverBank World Markets



Posted 02-29-2012 11:42 AM by Chuck Butler
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